A growing short-term bias conflict in the Bitcoin market led traders seeking opportunities in rivaling crypto assets.
The Bitcoin Dominance Index, which pits the flagship cryptocurrency’s market capitalization against the rest of the crypto market, fell to its two-month low on Friday. The index’s move downside appeared as traders pumped the altcoin market by up to $25 billion. In comparison, Bitcoin attracted roughly $14.77 billion within the same timeframe.
The latest capital shift appeared as Bitcoin failed to hold itself past $38,000 for the third time in less than a month.
Many traders anticipated a broader price move towards $40,000, with a primary upside target lurking the previous record high near $42,000. Nonetheless, a stronger US dollar and the prospects of a quicker US economic recovery kept demand for safe-havens dim, limiting Bitcoin’s gains.
The BTC/USD exchange rate slipped below $38,000 and went on to form intraday lows near $36,000. Its flat structure prompted traders to seek opportunities elsewhere, which led to massive short-term pumps across the altcoin market.
The biggest beneficiary was the decentralized finance sector.
Almost every top token listed under the brand name ‘DeFi’ profited from Bitcoin’s stagnancy in the last 24 hours. They included AAVE, a decentralized lending platform, whose token of the same jumped 19 percent, and Maker, a permissionless lending platform responsible for the creation of the stablecoin DAI, whose token MKR rose 35 percent.
Other DeFi tokens that logged wild rallies includes Chainlink’s LINK (+11.56%), Synthetix’s SNX (+14.60%), and Compound’s COMP (+20%).
Data provided by DeFi Pulse showed a spike in total value locked across the DeFi pools. It reached a record peak of $33.549 billion this Friday, confirming that more traders locked their crypto-assets into the smart contracts to seek attractive short-term yields.
Most of these liquidity pools allow users to deposit altcoins that operate away from the purview of DeFi. They include Ethereum’s ETH which lately achieved an all-time high after its influx into the DeFi pools created a supply crisis across spot exchanges. The token was up 1.67 percent on Friday.
Other traditional altcoins also rallied, with Ripple’s controversial token XRP surging 15 percent, and Cardano’s ADA by 18 percent.
The higher valuations across the altcoin markets sparked fears about a potential dump among some analysts. For instance, Bitcoin evangelist Vijay Boyapati warned about the 2018-like scenario. Back then, an aggressive bull run in the cryptocurrency market later led to capitalization declines of more than 95 percent.
“Many altcoins from prior cycles have gone to zero,” the ‘Bullish Case for Bitcoin’ author said. “I think most in this cycle will too. Perhaps not all, but in the long term the relative market cap to Bitcoin will mean-revert to something small. It always increases with the speculative fervor and dumb money entering.”
Meanwhile, Erik Voorhees, chief executive at ShapeShift, stated that all the cryptocurrencies would trade higher because “the whole industry is growing together, and it is not mutually exclusive.”
More Rate Shocks for Bitcoin Ahead Despite Latest Price Rebound
Bitcoin traders should get used to facing more shocks from Treasury markets even as the cryptocurrency goes through a strong rebound phase.
With coronavirus cases falling, another round of government stimulus looking likely, and millions of Americans receiving vaccines each week, expectations have surged higher about how quickly the US economy could expand this year. A Reuters poll showed that 90 percent of the 120 economists believe the US economy would reach pre-COVID-19 levels within a year.
Bitcoin Faces Headwinds
Expectations of a stronger economy have pushed long-term interest rates higher, with the 10-year Treasury note yielding 1.455 percent versus 0.93 percent at the year’s beginning. While that is a usual response to optimistic economic outlooks, it has posed risks for assets that logged supersonic bull runs amid low-yielding environments since March 2020.
They include Bitcoin, which has surged by more than 1,200 percent from its mid-March nadir. Investors chose it as an alternative against poor yields, alongside certain sectors in the US stock market (read tech shares) that offered to stay profitable during the coronavirus-induced lockdowns.
FactSet data shows that the S&P 500 now traded 22 times higher than its estimated earnings over the next year. It is the highest price-to-earnings ratio in 20 years, even higher than what it was after the 2009 economic crisis. As a result, even a modest move in yields tends to cause volatile moves in overvalued stocks.
On the other hand, Bitcoin expects to absorb the pressure as long as Treasury yields rise on US economic growth prospects. Nevertheless, any sudden spike in interest rates could pose risks for the cryptocurrency, given how it corrected lower by more than 21 percent last week as bond sell-off picked sudden momentum.
The Federal Reserve officials have clarified that they plan to leave short-term interest rates near-zero while buying Treasurys and mortgage securities at a pace of $120bn per month. But if the coronavirus crisis fades away after a speedier vaccination program, then it may question the central bank’s commitment to continue its asset purchasing program.
Such uncertainty could lead to higher volatility in bond markets, affecting Bitcoin and US stocks in the process. Meanwhile, a definite rate hike from the Fed could risk putting the cryptocurrency on a correcting course downwards.
“If the FED decides to change course and tighten up, this can act as a major headwind for crypto,” explained Ben Lilly, the author of ChainPulse, a crypto-focused newsletter. “That’s because, in such an environment, capital will be less likely to flow into assets at the tail end of the risk curve… Aka crypto.”
In other words, Bitcoin’s sell-off last week could be a preview of what a jittery bond market could do to the cryptocurrencies.
Price analysis 3/3: BTC, ETH, ADA, BNB, DOT, XRP, LTC, LINK, BCH, XLM
Evolve Fund Files for Ethereum ETF after Bitcoin Approval in Canada
Just weeks after opening a Bitcoin (BTC) exchange-traded fund, Evolve Fund has opted to file for a similar ETF product based on Ethereum (ETH). With $1.7 billion assets under management, Evolve is a Canadian-based ETF provider that specializes in “bringing disruptive innovation ETFs to Canadian investors.”
Just a month prior, Evolve Funds scored an approval from the Canadian government to proceed with listing their Bitcoin ETF on the Toronto Stock Exchange. Found under ticker EBIT.TO, the fund is down approximately 15% since its listing date.
“As a leader in disruptive innovation, we look forward to providing Canadian investors with access to another leading cryptocurrency through an ETF structure,” said Raj Lala, President and CEO at Evolve Fund. As Ethereum is the second biggest cryptocurrency by market cap, the digital asset has enjoyed similar levels of attention to Bitcoin from financial institutions.
Moreover, the Ethereum-based ETF would give potential investors exposure to the daily movements of Ether. Thanks to the “creation and redemption” processes offered by ETF structures, there would be minimal tracking errors between spot price and the ETF. Its portfolio will be based on ETHUSD_RR, a daily benchmark index price for Ethereum denominated in U.S. dollars.
The proposed fund would work similarly to its pre-existing Bitcoin counterpart. If approved, both ETFs would contract Cidel Trust Company and Gemini as their custodian and sub-custodian. This means that these two firms will hold client’s securities in electronic form, most likely through digital wallets.
Institutional Interest in Crypto, From Bitcoin to Ethereum, Continues to Grow
There is no doubt that institutions will continue to bring crypto-based investment products to the traditional financial markets. Just days ago, Goldman Sachs, one of the largest investment banks in America, reopened its Bitcoin-futures trading desk.
As public demand soars and financial institutions rush to join in, the future of cryptos looks brighter than ever.
Featured Image from Unsplash
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